On April 21, 2011, the Federal Trade Commission (FTC) and Electronic Mobility Corporation (d/b/a Rascal Scooters) entered into a settlement agreement pursuant to which Rascal Scooters agreed to pay $100,000 as a civil penalty to settle a complaint filed by the FTC alleging that Rascal Scooters violated the FTC Act (15 U.S.C. § 44) and the FTC’s Telemarketing Sales Rule (16 C.F.R. 310) (TSR). At the center of the FTC’s complaint was the allegation that Rascal Scooters and its owner, Michael Flowers, made more than three million unsolicited sales calls since 2003 to consumers on the Do Not Call Registry who submitted their contact information to Rascal Scooters through its “Win a Free Rascal” sweepstakes.

As background, the Telemarketing Sales Rule allows a company to call a consumer on the Do Not Call Registry if the company has an “established business relationship” with the consumer and the consumer has not otherwise opted out of receiving calls from the company. What Rascal Scooters failed to consider, however, was that an “established business relationship” does not arise from the submission of a sweepstakes entry form. Rather, an “established business relationship” only exists if a consumer has purchased a company’s goods or services within the 18 month period immediately preceding the call or if a consumer inquires or submits an application regarding a company product or service within the 3 month period immediately preceding the date of the call.

In addition to the $100,000 penalty, Rascal Scooters is only allowed to call consumers if it has their consent in writing or if there is an actual “established business relationship” and is subject to ongoing monitoring and reporting requirements to ensure its compliance with the settlement order.

It is important to note that the penalty imposed could have been (and can be) much greater than $100,000. Pursuant to the settlement order, Rascal Scooters is subject to a $2 million penalty that is currently suspended due to its inability to pay. The $2 million will become due immediately if it is revealed that the company misrepresented its inability to pay.

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